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Firestone Diamonds (LON:FDI) today announced a proposed placing to raise £14.7 million to further develop its flagship Liqhobong mine in Lesotho.
It follows a strategic review of the firm's operations and was oversubscribed, the firm said, adding the cash will also be used to repay debt, the ongoing costs of the BK11 in Botswana and for general working capital.
The company has provisionally placed 172.9 million shares at 8.5 pence a share. In order to carry out the placing, the company has reorganised its capital, it added.
The AIM quoted firm carried out the review in January and February and identified that a primary value driver was the development of the Liqhobong main treatment plant.
A definitive feasibility study, to cost around £1.6 million,for this plant will be completed by the middle of this year followed by detailed engineering and financing.
A further £1.9 million is required to increase the height of the tailings dam wall in order to allow for continued production from the pilot plant for the remainder of 2012.
Last month, the company revealed that its BK11 mine in Botswana had been placed on temporary care and maintenance.
Firestone said the decision was due to operational challenges and current weakness in the diamond market.
Today, it said it was now reviewing its exploration assets in Botswana with a view to unlocking value from these assets.
The company's renewed strategic focus is expected to transform the company from an early stage development and exploration business to an around 1 million carat per annum producer by 2015.
Firestone's chief executive Tim Wilkes said the oversubscribed placing showed the strong support for the Liqhobong project.
Directors Michael Hampton and William Baxter have resigned from the board, the firm also said today.
In a separate stock exchange statement, the firm released results for the six months to December 31 last year, in which it reiterated that its focus was now on the Liquobong mine.
It explained that the disappointing operating and financial results reported for the period can be attributed to the weakening diamond market and technical issues at the BK11 and Liqhobong processing plants.
Further investment here is expected to reduce diamond breakages and increase throughput, it said.
In the half year, the firm posted a loss before tax of £8.76 million, compared to a loss of £1.83 million in the comparative period in 2010, while the loss per share was 2.2 pence (2010:1.2 pence).
As at year end the firm had cash of £4.2 million (2010: £10.8 million).
Wilkes explained: "The higher than expected cash outflows in H1 2012 are mainly due to the general weakness in the diamond price experienced from July 2011 combined with technical challenges experienced at both the Liqhobong and BK11 plants."
In a note, City broker Fairfax said: "While the capital raising is a surprise given the depressed share price it puts the company on a better footing to properly develop the Liqhobong project. The company has been undercapitalised and struggled with addressing operational issues at both BK 11 and Liqhobong."
It also noted that the care and maintenance programme at BK 11 is costing $65,000 a month which makes it a better option than losses that were being incurred at around $300-$400,000 a month.
"The payment of the 3 year $3m debt at BK 11 should take pressure out of cash flows, it added.
"Production of diamonds through the pilot plant is targeted at 2,000 tons/day and they are currently mining 1,500 tons a day giving them 18,000 carats a month," it said, noting this should make Liqhobong cash positive and make a contribution towards group overheads.
The processing of diamonds through the pilot plant is being actively addressed by the company by trying to improve the screening process for the fines, it said.
Summing up, it added: "The company still needs to demonstrate that initiatives being undertaken at Liqhobong are coming through – for investors willing to take a longer term view this may not be a bad entry level for the shares particularly if the fund raising gives them breathing space."
Firestone shares this afternoon were trading down 5.33 per cent, at 8.88 pence.